Several factors go into deciding whether a person is eligible for a personal loan. Most of these factors aim to gauge the risk of repayment. The higher the risk of repayment the person has, the harder it will be to get loan approval. For instance, a higher credit score shows good credit behavior, and it could be easier for someone to get a loan if they have a better credit score.
But financial institutions look at several factors other than credit score. Employer status is one among them. Let us learn about employer status and why it matters in a loan application.
What is employer status?
Most lenders have categorized employers into listed firms with designations such as Super A, Cat A, Cat B, Cat C, and Cat D. These designations are based on status, reputation, financial position, and stability. Lenders place a higher confidence level in the creditworthiness of the workers employed by super A, Cat A, and Cat B enterprises. Therefore, employees of these companies are given certain benefits, such as a lower ROI, a greater loan amount, and better terms compared to applicants employed by Cat C and Cat D companies.
Non-listed firms are ones that are not documented anywhere, and workers of such companies have a difficult time even being accepted for a loan. In a nutshell, people who work for Super A and Cat A firms are regarded as “Hot Leads”, and their loan application is approved with more ease than that of other people’s applications.
Why is employer status important?
When evaluating an application for a loan, the first consideration that a financial institution gives is to the stability of the individual’s place of employment.
Companies with a good reputation are not at risk of going out of business in the near future; on the other hand, smaller and unlisted businesses are susceptible to the possibility that they may go out of business; in addition, layoffs are prevalent in such businesses.
Workers who are employed by large corporations are guaranteed a job and a certain amount of pay, which is not the case for workers who are employed by small businesses. The most essential reason for this is that lenders feel more confident that they will be repaid when they lend money to an employee of a reputable business. On the other hand, when they lend money to an employee of a smaller firm, they do not know whether they would be repaid on time.
Advantages of working in a reputed company when taking a loan
- The employees of reputed companies are more likely to get loan approvals
- They may be eligible for lower personal loan interest rates than others
- The process of applying for a loan could be easier
Conclusion
Like mentioned above, employer status is an important metric that lenders look at when considering loan approval. But a lower employer status is not the end of the world. Such employees may look at alternative loan options, such as from NBFCs. They could also go for loans with collaterals.
